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Do You Know About These Tax Changes for Small Businesses?

March 15, 2018 by OSYB Staff

Wayne Belisle, Small Business Profit Explosion, shares that “The new tax reform law passed in December of 2017 (the “Tax Cuts and Jobs Act” or TCJA) is the biggest overhaul of the federal income tax code since 1986.  It will have huge effects on business owners in 2018 and beyond.  In fact, I would argue that this is the biggest tax cut for the largest number of business owners in my lifetime.”

Here are some of the changes that will affect you, as a small business owner:

  1. Many business owners will qualify for a new 20% deduction. They can generally deduct 20% of “qualified business income” (in effect, you are only taxed on 80% of your business income). This is a great break for small business owners, but it is also one of the most complex changes in the new law. There are many restrictions designed to limit gaming the new rule. The break also phases out for higher earners in professional service firms such as accounting, health care, law, consulting, and financial services with taxable incomes in excess of $315,000 for joint returns and $157,500 for all other taxpayers.
  2. The maximum depreciation for qualified assets under Section 179 increases to $1 million (from $500,000). The deduction expires dollar for dollar once more than $2.5 million in assets are placed in service for the year.
  3. Separate depreciation rules for restaurant, retail, and leasehold improvements are gone. They have been consolidated under the grouping of qualified improvement property and subject to new depreciation rules.
  4. Qualified small businesses with inventories are no longer to use the accrual method unless they meet a $25 million sales test. This is up from $1 million.
  5. If you reimburse your employees for auto and other business expenses, you should switch to an “accountable plan” rather than a fixed fee amount. Employees can no longer deduct these on their personal returns unless they are reimbursed for actual expenses.

As with any tax information shared, please contact your tax professional.

For details:  SPECIAL REPORT ON NEW TAX REFORM LAW–20 Changes For Business Owners

Image Credit: Deposit Photos

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